Community Hospital identifies its new operator

City to begin exclusive negotiations with MWN, but all eyes are on July 3 lease deadline

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Courtesy City of LB
Pictured is a conceptual seismic timeline for Community Hospital that John Keisler, City of Long Beach director of economic and property development, presented Tuesday to the Long Beach City Council and the public. Although the timeline, subject to change, extends until the end of 2021, the statewide seismic deadline is June 30, 2019, and a legislative bill would be required for an extension.

More than a week after the Community Hospital Task Force emphasized the urgency of identifying a new potential operator to replace MemorialCare Health System, the Long Beach City Council agreed and unanimously voted Tuesday to approve City staff recommendations to engage in exclusive negotiations with Molina, Wu, Network, LLC. (MWN) healthcare group.

On Friday, June 15, the City of Long Beach issued a press release announcing its intention to select MWN as its candidate. The search last week was narrowed down to two unannounced candidates, according to John Keisler, City of Long Beach director of economic and property development, at a Community Hospital Task Force meeting June 11. The nomination these last few months primarily consisted of five candidates who submitted non-binding letters of interest.

“This is an exciting first milestone,” Keisler told the Signal Tribune in a phone interview Wednesday evening, “because what we’ve been able to accomplish in the past few months is to identify a team– which includes a real-estate-development component, an operational component and an administrative component– that has the experience and has the division to take over the management of an acute-care hospital at the site on a go-forward basis.”

If the search for a new operator was the marathon, the next few weeks are the full-on sprint, because the race is on to begin negotiations with MWN and ensure a smooth transition– the handing of the “warm baton,” as MemorialCare CEO John Bishop has put it– into Community Hospital, all this while facing a lease deadline of July 3. On June 25 at 6am, Community’s emergency room is also slated to close.

During his presentation to the city council and the public Tuesday, Keisler provided three recommendations that now serve as the outline for the negotiating period between City staff and MWN.

These steps require the city manager, or designee, to gather all documents necessary to begin the exclusive negotiating agreement with MWN for the lease and potential development of the property. The manager would also gather documents to “accept the assignment, management and revenue collection for existing leases between MemorialCare and tenants,” per Keisler’s presentation.

Lastly, the City Manager would make a formal request to MemorialCare to establish a transition plan to: avoid or limit the closure of the emergency room before the statewide seismic deadline on June 30, 2019; suspend the license for hospital beds or transfer the rights of hospital operations via a management agreement to MWN; and work with local hospitals and partners to limit the negative impacts that were listed in the Los Angeles County Emergency Medical Services (EMS) Impact Evaluation Report, which was submitted earlier this year.

The negotiating period is 180 days, with up to two periods of a 90-days extension, per Keisler’s presentation. Keisler said city-council approval of the negotiated terms and conditions would then be required at a future date.

In its non-binding letter of interest, MWN’s conceptual proposal was that it would operate on a minimum 40-year lease for $1 per year, and Anaheim Regional Medical Center (AHMC) would run the day-to-day at the hospital and Network Medical Management (NMM) would manage care contracts, among other agreements.

During the city-council meeting, Long Beach Mayor Robert Garcia said the ball is in MemorialCare’s court. With the negotiations, MemorialCare has the choice to keep the hospital open past July 3 and allow MWN to operate it under its license. MemorialCare’s license is active through April 28, 2019, according to Keisler.

MemorialCare representatives, including Bishop, have cooperated with the City and have met with potential operators during the process. In a phone interview Wednesday afternoon, Bishop told the Signal Tribune that he has met with MWN twice in the past month to get the group up to speed on the background of Community Hospital and its seismic situation.

Bishop, although supportive of the City and the hospital, expressed doubt about the feasibility of getting all the necessary regulatory approvals with MWN in the next two weeks in time for the July 3 lease deadline. As an example, he recalled how MemorialCare’s purchase of Community Hospital in 2011 took 10 months to get all the necessary approvals.

“No matter how hard anybody works, two weeks is not enough time to do a deal that needs to have all of these types of regulatory approvals,” Bishop said. “[…] It’s unfortunate. We’ve explained that to them. I don’t understand their perspective in thinking that it can get done, other than they would like to get the hospital. They have not even set up the legal entity yet. My understanding is that it will be a for-profit, so they will not be able to get the same dollar-a-year lease that we receive. There is not nearly enough time, given the fact that everything is undecided at this point. There is no specificity as far as deal terms or approvals. Two weeks is simply not enough time to get an arrangement done.”

Bishop then went into detail about the past eight months. Last November, MemorialCare announced Community did not meet the seismic-safety regulations established by the Office of Statewide Health Planning and Development (OSHPD).

MemorialCare was aware of a fault line located along the back-left portion of the property when it purchased Community in 2011, however a more recent study revealed that the facility instead stood on two larger fault lines. More research indicated that the fault zone was active.

Bishop said although it invested $22 million in operational enhancements, $15 million in capital funding and $1 million in evaluating options to become compliant with seismic law, MemorialCare still found no viable solution to keep the site open.

Although it intended to operate until June 2019, the departure of staff prompted an earlier closure, thus triggering the spontaneous 120-day lease termination notice in March.

“I spent the better part of December and January meeting with elected officials and city officials to help them understand why the hospital was very likely going to need to close in the mid-summer of this year, despite the fact that we put in employee-retention bonuses to try and keep them through a transition date,” Bishop said. “At this point, obviously, it’s great that the City was able to identify someone who was willing to come in and try and go through this process, but two weeks is clearly not enough time, and there is still no approved seismic plan. The City has yet to submit any plan to bring the building into compliance with the code. They’ll also need to have legislation passed that would defer the submission deadline for the compliance plan. So, a lot of hurdles to get done in an extremely short period of time.”

Bishop said MemorialCare worked collaboratively with OSHPD to find a solution, but they both concluded it was not feasible to develop a plan. Bishop also detailed his account of the last eight months in an open letter June 15.

In the letter, he also wrote that he has given notice of termination to vendors and service providers, including physicians and medical-service affiliates, and that all equipment, other than what is required for remaining operations, have been removed or returned to leasing companies. He said extending the closure date past July 3 is “operationally irreversible at this late date.”

The City responded to the letter June 19, refuting some of Bishop’s statements.

Signed by Garcia, Long Beach 4th District Councilmember Daryl Supernaw and City Manager Patrick West, the letter dismisses the notion that OSHPD concluded the site was infeasible to seismically retrofit, claiming that MemorialCare never submitted a plan to OSHPD and that it does not make formal positions on feasibility until such plans have been submitted. Moreover, the letter reads that OSHPD has indicated a number of potential solutions for the hospital, including consolidating the emergency room and basic services in a smaller hospital in the seismically-safe portion of Community, the Heritage Building.

“All the objections that MemorialCare has had up to date, we think we came up with alternatives or ways to nullify those objections,” Supernaw told the Signal Tribune in a phone interview Wednesday afternoon. “I think we did a good job of that.”

Regardless of the back-and-forth between the City and MemorialCare, Keisler said City staff has worked with OSHPD, construction partner Perkins+Will and the State Geological Survey to establish a seismic plan. In his presentation, Keisler showed a seismic timeline extending to the end of 2021 that would ultimately help Community reach absolute compliance.

As mentioned in the City’s letter, OSHPD’s proposed solution for Community is to consolidate acute-care services to the Heritage Building and move the hospital’s Central Plant to a seismically safe area.

Time is not on the City’s side, however. The plan requires three more years of work, while the State has imposed a seismic deadline for the end of next year.

California 70th District Assemblymember Patrick O’Donnell intended on extending the seismic deadline with Assembly Bill 2591 (AB 2591), introduced in February, but the Assembly Health Committee put the bill on hold in April since the City had not yet developed a seismic plan.

“Perkins+Will, our architect, is completing the conceptual design and, from there, we move into the actual construction plans,” Keisler said. “Now, that’s the process that will likely cost an estimated $1 million worth of real hardcore engineering and architectural plans that would be required to submit to the State of California, to OSHPD, for final review and approval and, ultimately, the construction process, which we’re still in the process of doing a conceptual-cost estimation on what we’ve completed to date. We should have those costs probably toward the end of next month. All in all, we’ve got a plan that likely will take until the end of 2021, and so we will need an extension to our seismic deadline from the State of California. Our deadline for this facility would otherwise be the end of 2019, really. That’s one of the reasons we need that legislation.”

During the council meeting, the Community Hospital Long Beach Foundation offered to buy an up-to $1 million insurance policy for MemorialCare to protect it against any potential financial loss. Bishop, who live-streamed the meeting from his home, told the Signal Tribune that this was the first he had heard about it.

In response to MemorialCare’s intent to not keep the hospital past July 3, Supernaw expressed optimism.

“I would say, ‘Well, let’s try it,’” he said. “Let’s put everything in motion and see if it happens. If it doesn’t, that’s on us. That’s on the City of Long Beach. But, if you don’t allow that to proceed, then MemorialCare is the one who’s stopping it. Let us be the ones taking the risk. What I said [Tuesday] was that a lot of people commented negatively about MemorialCare, and I said, ‘Well, if they pull the trigger on this, if they allow the transfer of the license, then all is forgiven. They’ll come out looking great.’”

Bishop expressed his disappointment with the way Community’s situation has played out, maintaining his stance with closure.

“It is not feasible to bring it into compliance, and we’re taking the most prudent course of action given the circumstances and the facts that are before us,” he said. “It’s not a decision that we took lightly or wanted to even make, we had no choice. This is not an elective closure. This is one that was necessitated, I think responsibly, by seismic law.”

Keisler said the City is still hopeful that there will be no disruption of service, but if there is, that is “Memorial’s call.”

“MemorialCare has the option of keeping the hospital open,” Keisler said. “They don’t have to close. There is nobody telling them that they have to close. […] They’ve communicated what they intend to do, but that’s their choice. It’s not impossible, it’s not infeasible. It’s just a matter of choice.”